energy profile of malaysia

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ENERGY PROFILE OF MALAYSIA

Introduction

Map of Malaysia.

Malaysia's economic growth slowed in 2005, with real gross domestic product (GDP)expanding by 5.3 percent, down from 7.1 percent in 2004. The slowdown was largely due toa drop in the rate of growth of the countrys exports, particularlysemiconductors andconsumer electronics items. Real GDP growth for 2006 is forecast at 5.5 percent.

Malaysia's banking system has been stabilized, after being undermined by a high proportion

of nonperforming loans during the Asian financial crisis of 1997-98. The country's bankingsector went through a major restructuring in 2000, with many weaker financial institutionsbeing taken over by stronger ones. In order to stimulate the economy, the country'sgovernment increased spending sharply in 2001, but in 2003-2004 began to reduce itsgovernment budget deficit, though some deficit spending is likely to continue for anotherseveral years. With its high current account surplus, equal to about 12 percent of GDP,Malaysia has been reducing its foreign debt, and may become a net creditor around the end ofthe current decade.

Malaysia has maintained its policy of a fixed exchange rate between the ringgit and the U.S.dollar. The fixed rate was imposed by Prime Minister Mahathir in September 1998 as part ofcapital controls designed to stem the outflow of short-term capital in the wake of the Asian

financial crisis. Malaysias currency is considered somewhat undervalued at the presentexchange rate of 3.8 ringgits to one U.S. dollar. In 2001, some of the capital controls imposedin 1998, such as the taxes on repatriation of short-termstock market profits by foreign

portfolio investors, were relaxed.

Prime Minister Mahathir Muhammad stepped down in October 2003 after over two decadesin office. Abdullah Ahmad Badawi, who had previously served as Deputy Prime Minister,succeeded him.


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Oil

Malaysia's Oil Production and Consumption, 1980-2005. (Source: EIA)

Malaysia contains proven oil reserves of 3.0 billion barrels, down from a peak of 4.3 billionbarrels in 1996. Despite this trend toward declining oil reserves, Malaysia's oil production hasbeen rising since 2002 as a result of new offshore development. In 2005, the countrys totaloil production averaged 871,000 bbl/d, up from an average of 860,000 bbl/d in 2004.Naturalgas liquids production contributed 84,000 bbl/d of that amount in 2005. Malaysia's oildemand has been growing at a much slower rate than its economic output, due largely to theconversion ofoil-fired power plants to natural gas.

As a result of the long-term trend toward declining oil reserves, Petronas, the state oil and gascompany, has embarked on an international exploration and production strategy. Currently,Petronas is invested inoil exploration and production projects in Syria, Turkmenistan, Iran,Pakistan, China, Vietnam, Burma, Algeria, Libya, Tunisia, Sudan, and Angola. Overseas

operations now make up nearly one-third of Petronas revenue. The majority of Malaysias oilexports go to markets in Japan, Thailand, South Korea, and Singapore.

Malaysia's domestic oil production occurs offshore, primarily near Peninsular Malaysia. Mostof the country's oil fields contain low-sulfur, high-quality crude. More than half of thecountry's oil production comes from the Tapis field, which contains a light grade of crude oilwith a low sulfur content. Esso Production Malaysia Inc. (EPMI), an affiliate of ExxonMobilCorporation, is the largest crude oil producer in Peninsular Malaysia, accounting for nearlyhalf of Malaysia's crude oil production. EPMI operates seven fields near the peninsula, withone-third of its production coming from the Seligi field. The Seligi-F platform, with its 28wells, is the newest satellite in the Seligi field, located 165 miles off the coast of Terengganu,

Peninsular Malaysia. EPMI holds a 78% interest in the project with Petronas Carigali holdingthe remaining 22%. EPMI began production from the offshore Larut field in Block PM5 inearly 2002, which has reached peak production of 140,000 bbl/d, offsetting some of theproduction declines in more mature fields in recent years.

In other developments, Sabah Shell Petroleum Company, a unit of Royal Dutch/Shell Group,has raised production at the Kinabalu field to 36,000 bbl/d, plus 28 million cubic feet per day(Mmcf/d) of natural gas. Production at Kinabalu, located in the SB-1 block 34 miles off thecoast of Labuan, Sabah in east Malaysia, began in December 1997. As operator of the SB-1


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block, Shell holds an 80 percent stake in the block, with Petronas holding a 20 percent stake.Shell reported two new discoveries offshore from Sabah in 2004, Gamusut-1 in March and

Malikai-1 in September. Gamusut-1 lies in deep waters which are the subject of a territorialdispute with Brunei. Both finds are still under evaluation, but are expected to yield significant

reserves. Shell also was awarded exploration rights to Blocks ND6 and ND7 offshore fromeastern Sabah in February 2005, in an area disputed by Indonesia. Both countries deployed

additional military forces to the area in the spring of 2005, and also have been in negotiationsaimed at resolving the dispute.

In February 2000, Sweden's Lundin Oil announced that it had signed a sales agreement withPetronas and PetroVietnam which will allow it to proceed with development of its long-delayed Bunga Kekwa project. Production has now reached a peak of 40,000 bbl/d. LundinOil is the operator of the field, and Petronas and PetroVietnam hold equity stakes in theproject. PetroVietnam, Pertamina of Indonesia, and Petronas concluded an agreement in June2003 for joint exploration of Block SK305 offshore from Sarawak.

Murphy Oil reported a sizable new find in August 2003 at Kikeh, in Block K offshore

from Sabah. Exploratory drilling in the area continues, and Murphy Oil has set a target

of 2007 for commercial production. This will be Malaysia's first deepwater oil production.Murphy Oil was awarded two new exploration areas in January 2003, Blocks L and M,adjacent to Block K. Another adjacent area, Block P, was awarded to Talisman in January2006. Murphy has reported several new successful wells in these areas in 2004 and 2005, aswell as one in shallow waters near peninsular Malaysia, Kenarong-1. Canadian independentTalisman Oil reported a new find in Block PM305 in shallow waters offshore from peninsularMalaysia in May 2003, which began commercial production in August 2005 at about 12,000bbl/d. Talisman received an award for additional exploration acreage adjacent to its existingblock in June 2005.

Refining & Downstream

Malaysia has six refineries, with a total processing capacity of 544,832 bbl/d. The threelargest are the 155,000-bbl/d Shell Port Dickson refinery and the Petronas Melaka-I andMelaka-II refineries, which have a capacities of 92,832 bbl/d and 126,000 bbl/d, respectively.

The second phase of the $1.4 billion, 200,000-bbl/d Melaka refinery complex, located about90 miles south of Kuala Lumpur, commenced operations in August 1998. The 100,000-bbl/dMelaka-II second phase is a joint venture between Petronas (45%), Conoco (40%), andStatoil (15%). This second refinery contains a 62,000-bbl/d vacuum distillation unit, 26,000-bbl/d catalytic cracker, 28,500-bbl/d hydrocracker, 35,000-bbl/d desulfurization unit, and21,000-bbl/d coker. One of the main purposes of this refinery is to supplygasoline toConoco's service stations in Thailand and a new line of stations planned for Malaysia. The

first phase of the Melaka refinery was finished in mid-1994 and consisted of a 100,000-bbl/dsweet crude distillation unit, which is wholly owned by Petronas and processes Tapiscrude oil.

BP sold a 70 percent stake in its network of retail outlets in Malaysia to local investmentcompany Boustead Holdings in February 2005. BP Malaysia has 245 branded retail outlets.

With the rapid rise in crude oil prices over the last two years, Malaysias subsidized prices forretail petroleum product sales have become quite costly for the countrys government.


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Natural Gas

Malaysia's Natural Gas Production and Consumption, 1980-2003. (Source: EIA)

Malaysia contains 75 trillion cubic feet (Tcf) of proven natural gas reserves. Natural gasproduction has been rising steadily in recent years, reaching 1.9 Tcf in 2003. Natural gas

consumption in 2003 was estimated at 1.0 Tcf, withliquefied natural gas (LNG) exports ofaround 0.9 Tcf (mostly to Japan, South Korea, and Taiwan).

One of the most active areas in Malaysia for gas exploration and development is theMalaysia-Thailand Joint Development Area (JDA), located in the lower part of the Gulf ofThailand and governed by the Malaysia-Thailand Joint Authority (MTJA). The MTJA wasestablished by the two governments for joint exploration of the once-disputed JDA. The JDAcovers blocks A-18 and B-17 to C-19. A 50:50 partnership between Petronas and AmeradaHess is developing block A-18, while the Petroleum Authority of Thailand (PTT) andPetronas also share equal interests in the remaining blocks.

PTT and Petronas announced an agreement in November 1999 to proceed with developmentof a gas pipeline from the JDA to a processing plant in Songkla, Thailand, and a pipelinelinking the Thai and Malaysian gas grids. Malaysia and Thailand will eventually each takehalf of the gas produced, though initial production will go just to Malaysia. The project hadbeen controversial in Thailand, facing opposition from local residents in Songkla along thepipeline route. In May 2002, the Thai government announced a final decision to commenceconstruction on the project later that year, though the pipeline route was altered slightly toavoid some populated areas. Deliveries of natural gas into Malaysia began in the firstquarter of 2005, with deliveries into Thailand scheduled to begin in 2006 . A salesagreement for natural gas from the other jointly-held blocks was signed in June 2005, withdeliveries to Thailand of 270 MMcf/d beginning in 2008.

ExxonMobil produces about 335 Mmcf/d at its offshore Bintang natural gas field in the SouthChina Sea, which contains about 1 Tcf of proven reserves. Commercial production at Bintangbegan in February 2003.

Malaysia accounted for approximately 16% of total world LNG exports in 2004. After muchdelay, Malaysia is proceeding with a long-planned expansion of its Bintulu LNG complex inSarawak. In February 2000, Petronas signed a contract with a consortium headed by KelloggBrown and Root for construction of the MLNG Tiga facility, with two LNG liquefaction


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trains and a total capacity of 7.6 million metric tons (370 Bcf) per year, which was completedin April 2003. The Bintulu facility as a whole is now the largest LNG liquefaction center in

the world, with a total capacity of 23 million metric tons (1.1 Tcf) per year. Most of theproduction from the new LNG trains will be sold under term contracts to utilities in Japan.

Tokyo Electric Power (TEPCO), Tokyo Gas, and Chubu Electric all import LNG from theproject. BG signed a contract in August 2004 for supplies over a 15-year period to the United

Kingdom, to begin in 2007 or 2008. Shell brought two additional fields online in 2004, Jintanin March, and Serai in September, both of which feed into the Bintulu export terminal. Thetwo fields added over 1 Mmcf/d to Malaysias gas production.

In addition to LNG, Malaysia exports 150 million cubic feet per day (Mmcf/d) to Singaporevia pipeline. Surprisingly, Malaysia also is an importer of gas from Indonesia. Petronassigned an agreement in April 2001 with Indonesia state oil and gas company Pertamina forthe import of gas from Conoco's West Natuna offshore field in Indonesian waters. The moveis being seen as part of a Malaysian strategy to become a hub for Southeast Asian natural gasintegration. Deliveries from the pipeline commenced in mid-2003. The pipeline connects toan existing pipeline from the shore to Malaysia's offshore Duyong field, helped to minimizeconstruction costs.

Electricity

Malaysia's Electricity Generation, 1980-2003. (Source: EIA)

Malaysia has approximately 16 gigawatts (GW) of electric generation capacity, of which87% is thermal and 13% is hydroelectric. In 2003, Malaysia generated around 79 billion

kilowatt-hours of electricity. The Malaysian government expects that investment of $9.7billion will be required in the electric utility sector through 2010. Much of that amount willbe forcoal-fired plants, as the Malaysian government has adopted a policy of attempting toreduce the country's heavy reliance on natural gas for electric power generation.

The largest thermal project under development in Malaysia is the 2,100-MW coal-firedTanjung Bin project in Johor province. Sumitomo was awarded a $1.5 billion contract inearly 2003 by SKS Power, a Malaysian IPP, for the construction of three 700-megawatt


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(MW) generating units at the site, with the first unit scheduled to begin commercial operationin August 2006.

In 1994, the Malaysian government granted approval for the massive 2.4-GW Bakun

hydroelectric project in Sarawak. Scheduled for completion in 2002, the Bakun Dam hadbeen slated to send 70% of its generated power from Sarawak to Kuala Lumpur through the

construction of 415 miles of overhead lines in eastern Malaysia, 400 miles of submarinecables, and 285 miles of distribution infrastructure in Peninsular Malaysia. In addition,expansion plans included a high-voltage line south to Johor Baharu and north to Perlis, nearthe western Thai border. A local company, Ekran, was awarded a turnkey contract to managethe project in January 1995. In 1996, the construction contract went to Sweden's Asea BrownBoveri (ABB). However, in early September 1997, the Malaysian government announcedthat it was delaying the project indefinitely, citing an unexpected rise in the dam's cost due tothe country's economic difficulties at the time.

In mid-1999, work resumed on the river diversion tunnels, a major component of the project,which has since been completed. The Malaysian government has taken control of the projectand negotiated financial settlements with the firms involved. The subsea transmission line

concept has been abandoned, and the Malaysian government is exploring the possibility ofsales ofelectricity to Brunei and Indonesia. While it had appeared likely that the projectwould be scaled back from its 2,400-megawatt (MW) capacity, the Malaysian governmentannounced in February 2001 that it had decided to complete the project on its original scale.Bids were received in July 2002 for the main construction work for the dam, and aconstruction contract was awarded to a consortium of six Malaysian and Chinese companiesin March 2003. Current plans call for the 300-MW generating units to be brought online instages, with the first capacity to come online in 2007. Whileelectricity demand in Sarawak ismodest (currently under 1 GW), the potential to use the electricity to develop a metalsmelting industry in Sarawak is largely behind the renewed interest in the project.

Malaysia is considering reforms to its power sector to make it more competitive and lowercosts. Currently, three state-owned utilities dominate power generation and distribution inMalaysia. The market was opened to independent power producers (IPPs) in 1994, and 15IPPs were licensed, though not all of the projects have been built.

Tenaga Nasional Bhd, the main state-owned utility, began in 1999 to divest some of its powergeneration units. Eventually, Malaysia expects to achieve a fully competitive power market,with generation, transmission, and distribution decoupled, but reform is still at an early stageand the exact process of the transition to a competitive market has not been decided. Theissue is still under study, and many observers have voiced caution in light of the experiencesof otherderegulated utility systems.

Citation

Eia (Content Source);Langdon D. Clough (Topic Editor) "Energy profile of Malaysia". In:Encyclopedia of Earth. Eds. Cutler J. Cleveland (Washington, D.C.: EnvironmentalInformation Coalition, National Council for Science and the Environment). [First publishedin the Encyclopedia of Earth January 18, 2007; Last revised Date January 18, 2007; RetrievedJanuary 9, 2011

energy profile of malaysia

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